Industrial development revenue bonds are backed by:-The local municipal district in which the facility is domiciled-The state in which the facility is domiciled-The corporate guarantor-Both the corporate guarantor and municipality
The corporate guarantorThe corporation that uses the facility that was built by the industrial development revenue bond becomes the party that is backing the bonds. The credit rating of these bonds is dependent on that corporation, not on the municipality issuing the bonds.
Industrial development revenue bonds are typically backed by both the corporate guarantor and the municipality in which the facility is domiciled.
The corporate guarantor provides a guarantee of the bond’s payment in the event that the company that is developing the facility is unable to meet its financial obligations. This guarantee is typically in the form of a letter of credit or a bond insurance policy.
At the same time, the local municipality also provides backing for the bond. This is typically in the form of a tax abatement agreement that reduces the property taxes owed by the developer on the facility. By reducing the developer’s tax burden, the municipality helps to ensure that the developer is able to meet its financial obligations and repay the bonds.
Overall, the backing provided by both the corporate guarantor and the municipality helps to reduce the risk associated with industrial development revenue bonds and makes them a relatively safe investment option for investors.
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